Not all applications for personal loans end up in approvals. There are many applicants who have faced rejection of their application. A rejection of a loan application when you are in conditions when you require urgent cash may add to more stress mentally and financially.
Do not wait till you land up in such situations anymore. Learn more about the common reasons why personal loan applications are rejected. So that the next time you apply for a personal loan, you can be better prepared.
Low Credit Score
Credit Score is a measure of your creditworthiness and is decided by your credit score. It is assigned by the credit bureaus based on your past and existing behavior with credit. A good credit score indicates that you are a safe borrower and are more likely to repay the borrowed amount on time.
On the other hand, a low credit score is an indicator that the applicant is not creditworthy. Off-late, a good credit score above 750 is a minimum requirement to be eligible for most of the loans, including a personal loan. Therefore, if your personal loan application has been rejected, a low credit score can be a very likely reason.
To avoid getting rejections on account of a low credit score, you could consider applying to lenders like Money View who have lower credit score requirements for their instant personal loans.
The income of the applicant is another key determinant of your personal loan approval or rejection. Your income should match up to the loan amount applied for. Lenders evaluate your monthly income and the possible growth potential to decide on your loan eligibility. Generally, the lender may approve up to 30 times your monthly income as a personal loan, provided you meet all other conditions.
A low income, with respect to your loan amount, can often be a case for personal loan rejection. Therefore, make sure you have a good income before applying for a personal loan. You may want to check one of the loan calculators available online to check your loan eligibility.
High Existing EMI to Income Ratio
Though a good income level is one of the requirements of getting loan approval, the existing EMIs being paid out of that income also matters. If you already have many loans and are repaying all of them, a big percentage of your income may be going towards that.
The generally accepted ratio of existing EMIs to Income is around 30-50%. Despite having a high income, if existing EMIs are taking up a high proportion of your income, your personal loan application has a high chance of getting rejected. It may be good to apply to a personal loan after clearing some of your existing loans.
Frequent Applications to Credit
Are you the one frequently in search of a good deal on loans or credit cards? And keep applying to many of them?
Frequent applications to any form of credit, either loans or credit cards are seen as credit hungry behavior and the same is not encouraged by banks and other financial institutions. It is recognized as a sign of the individual not being able to manage his/her expenses within his income.
Hence, if your personal loan application is being submitted immediately after other loan or credit applications, it may turn out to be a good reason for rejection of the application. It is always good to keep a decent gap between any two loans/credit card applications.
The basic rule here being, apply to credit or to a loan only when you are really in need of one.
Often, stable employment is an indicator of good income. If you have been hopping jobs frequently without spending time at any of them, the same may not be taken kindly by your lender.
Unstable employment may give an impression to the lender that you might not pay your EMIs on time. Also, if your employer is on the blacklist of lenders due to various reasons like non-payment of salaries, the same might not be appreciated by lenders. Certain lenders may not lend to self-employed individuals.
These reasons may lead to rejection of your personal loan application.
If your personal loan application consists of incorrect details with regards to your personal, professional or income details, it may form a valid ground for rejection of your application.
Absence of approved documents for identity, address or income proof may also be one of the reasons for rejection of personal loan application.
So, the next time you are applying for a personal loan, make sure to take note of all these possible reasons for rejection and stay clear of them.